7/14/2009 @ 1:00PM

Sue City

New York City spends more money on lawsuits than the next five largest American cities–Los Angeles, Chicago, Houston, Phoenix and Philadelphia–combined.

The city’s $568 million outlay in fiscal year 2008 was more than double what it spent 15 years ago and 20 times what it paid in 1977. New York now allocates more taxpayer dollars to settling personal-injury lawsuits than it does to parks, transportation, homeless services or the City University system. As the city seeks ways to save money during the financial crisis, it should focus on reforming the warped system that makes such unreasonable and unproductive expenditures possible.

Suing the city is big business. Ninety percent of the city’s claims costs come from personal-injury lawsuits; of these, medical-malpractice suits are by far the priciest, draining $145.3 million from city coffers in fiscal year 2008–a particular vulnerability for a self-insured city with 11 public hospitals. Sidewalk “slip-and-falls” cost taxpayers $54 million, while motor vehicle and school-related claims socked the city for $53 million and $51 million, respectively.

Nearly 90 cases against the city were settled for amounts over $1 million, and the average settlement was nearly $75,000–up from $14,396 in 1984. (The city settles most suits to reduce the costs of going to trial.) These totals don’t include the expensive legal work on cases that can drag on for years.

The culture of litigation has been so pervasive that back in 1982, the New York State Trial Lawyers Association formed the Big Apple Pothole and Sidewalk Protection Corp., a consortium whose sole stated purpose was plotting 11,000 miles of New York City sidewalks for deficiencies and then giving written notice to the city “so that injured people could sue.” This “map to suing the city,” as The New York Times described it, made sidewalks a virtual ATM for litigants.

But sidewalk slip-and-falls sound positively sane compared with other lawsuits recently lodged against the city. A Brooklyn insurance investigator won $2.3 million this year after he tumbled onto the subway tracks with a 0.18 blood-alcohol level and lost his right leg. (“They’re not allowed to hit you just because you’re drunk and on the track,” his lawyer explained.) A corrections officer received $7.25 million after unsuccessfully attempting suicide, on the grounds that the city should not have permitted her to have a gun. (“Ms. Jones could just have easily turned her city-authorized firearm on anyone,” her lawyer said.)

Even a judge got into the shakedown game, suing the city and a courthouse cleaning lady for “negligently using a mop and soapy water,” supposedly making him slip and break his knee. Still unresolved is a $10 million suit brought by a couple stranded for five hours on a sky tram over the Bronx Zoo’s baboon cage. They allege “psychological trauma” and an endangered pregnancy.

Why is Gotham such a litigation target? Blame New York State’s laws, which have made the city a gold mine for personal-injury lawyers. While many states restrict lawsuits against municipalities to state claims courts, which are overseen by only a judge and tend to restrain damages, New York allows citizens to sue municipalities in jury trials. The New York State Legislature has also periodically blocked bills that would create a special court of claims for municipal cases–though the state hypocritically enjoys the low-cost benefits of a claims court for lawsuits filed against it.

But then the legislature has killed no fewer than a dozen tort-reform bills over the past decade, reflecting the cozy relationship of New York trial-law firms and state lawmakers, who have received $2 million in donations over the last five years from the New York State Trial Lawyers Association. A notorious example of this coziness: Assembly Speaker Sheldon Silver is “of counsel” at Weitz and Luxenberg, a personal-injury law firm that currently has 36 lawsuits pending against the city.

Under current law, lawyers’ fees in medical-malpractice cases are capped at 10% for all awards exceeding $1.25 million. In recent budget negotiations, Silver reportedly pushed for increasing that cap to 33%–a massive new incentive for lawsuit abuse in the Empire State that would drive out doctors and drive up deficits. Silver claims that his interest in blocking tort reforms is purely philosophical, but he may have a financial interest in such outcomes as well, raising the question of whether the New York State Commission on Public Integrity should investigate whether Weitz and Luxenberg has an undisclosed but well-compensated lobbyist working at the highest level of the state legislature.

Tort reform would benefit not just private victims of trial-lawyer shakedowns but the city as well. A good start would be to place caps on noneconomic damages, such as pain and suffering, as two-thirds of states have done. In Texas, for instance, lawmakers recently imposed a $250,000 cap on noneconomic damages, which not only resulted in dramatically reduced malpractice-insurance premiums for doctors, but also cut the number of all tort lawsuits in half and doubled the number of doctors applying to practice medicine there. California has long capped such damages at $250,000 in medical-malpractice cases.

Many states have also abolished or limited joint and several liability, which skews responsibility for damages toward the party with the greatest ability to pay, regardless of wrongdoing. Following suit would help New York level the playing field with those other states and protect the city from absurd litigation as well. But perhaps the single most effective action would be to establish a court of claims for municipal cases to restrain outsize judgments.

Another constructive local reform to shield New York City from lawsuit abuse is already being implemented at the city’s Health and Hospitals Corp. The HHC is currently the only city agency that has damages taken directly out of its budget, rather than out of the general city budget fund. Motivated by the increased accountability for its claims, the HHC is implementing risk-management pilot programs and fighting frivolous claims more aggressively by handling its own litigation. Consequently, claims against the HHC have declined 17% over the course of this decade (by comparison, the NYPD has seen a 32% increase in claims against its officers). The HHC approach should go citywide.

Lawsuit abuse benefits the very few at the expense of the many. Reforming New York’s culture of lawsuit abuse won’t happen overnight or without a fight–especially with so many state lawmakers committed to moving counter to national tort-reform trends. But as former Indianapolis Mayor Steve Goldsmith says wryly of New York: “If you can get criminals under control, surely you can get lawyers under control.”

John P. Avlon is a senior fellow at the Manhattan Institute. Adapted from “New York’s Tomorrow,” a special issue of City Journal.